SAA will restructure its
override commission
agreements with
South African retail travel
agencies, come April 1. This
is likely to have a fundamental
impact on many agencies
and consortiums that rely
heavily on these incentives
to contribute to their bottom
lines.
“As the margins in travel
are extremely tight it is often
the override that takes a
traditional travel agency from
a loss to a profit. With SAA
international override deals
counting for anything from
25% to 40% of total overrides
received, a big reduction in
pay-outs from SAA will have a
dramatic impact on the bottom
line,” says Garth Wolff, ceo of
eTravel.
Although retail agents are
still unclear about exactly what
changes will be made as they
wait to engage with SAA on
new commercial agreements,
it’s believed that the airline
plans to move from a volumebased
to growth incentive
model, whereby consortiums
will be rewarded on their
growth percentages.
SAA has in the past had
many constraints placed
on it by the Competitions
Commission as a result of
its dominant position in the
domestic market and it was
unable to reward retail agents
based on growth. “We surmise
that on the international side,
where SAA is not dominant,
the playing fields will be
levelled with its competitors
and it will be allowed to move
to growth-based incentives,
which will probably be less
lucrative than the volumebased
model,” says Wally
Gaynor, md of Club Travel.
The travel trade has
been a strong supporter of
SAA, reputedly contributing
around 80% to the airline’s
international sales. This could
change things in favour of
airlines, such as Emirates,
that offer the trade attractive
override incentives.
“With the market being highly
competitive, other carriers
are playing aggressively in
the same international space
as SAA. Needless to say, the
Middle Eastern carriers are
not going to relinquish market
share easily and they will be
courting the big hitters to
maintain their growth,” says
Rod Rutter, coo of XL Travel.
“Holding a significant portion
of the international market,
SAA must wish, and need,
to grow its market share, so
growth targets have to be
treated cautiously. Growth is
an integral part of SAA’s plan
to return to profitability and we
wish them well in achieving
their objective. It is important
that they do not fail to engage
positively with the trade,” he
says.
“From an eTravel perspective,
the fixed costs pertaining
to the average ITC are
significantly lower than a
traditional bricks-and-mortar
outlet, hence the monthly
impact may not be detrimental.
However, the annual bonus or
override pay-out has become
heavily relied on by ITCs within
the eTravel group to cover
costs incurred in the build-up
to the Christmas period,” says
Garth. “What will invariably
take place is that the ITCs’
focus will shift from supporting
SAA to other international
carriers.
“I think SAA is making a big
mistake should they go this
route as the South African
travel trade is still their sales
force and SAA should rather
be focusing on cutting costs
internally than affecting their
sales,” says Garth.
For some agencies, a growth
incentive is more fitting. “We
haven’t seen the new deal yet
but Pentravel is no longer part
of a large consortium and a
growth incentive should suit
us better,” says Pentravel ceo,
Sean Hough.
SAA has made it clear over
the past few months that
it is looking closely at its
contractual agreements. In
a statement last month on
the progress of SAA’s 90-Day
Action Plan, the airline said it
had completed approximately
40% of identified contract
renegotiations, which formed
part of a strengthening of
governance controls within
the procurement area and a
re-focus on cost compression.
The airline did not respond
to requests for comment on
its plans to restructure its
override agreements with the
South African travel trade by
the time of going to press.
